Too many cakes!!
The burden of choice for consumers could mean big bucks for your business!
SOURCES
https://www.livescience.com/physics-mathematics/physicist-richard-feynmans-forgotten-notes-on-the-restaurant-problem-finally-deciphered-after-50-years?utm_source=firefox-newtab-en-us
https://www.pnas.org/doi/10.1073/pnas.2509612123
https://marketingwithdave.com/the-paradox-of-choice-in-marketing-fewer-options-more-sales/
https://www.business.com/articles/the-psychology-of-choice-and-how-your-startup-can-leverage-it/
https://www.hbs.edu/ris/Publication%20Files/16-037_eb512e96-28d6-4c02-a7a9-39b52db95b00.pdf https://academic.oup.com/pnasnexus/article/4/11/pgaf287/8313348?login=false
This month we don’t have a specific plug, we just ask that you look into your local animal rescues and donate what you can, whether it be time, money, or resources. Your local animals thank you!
The Marketing Gateway is a weekly podcast hosted by Sean in St. Louis (Sean J. Jordan, President of https://www.researchplan.com/) and featuring guests from the St. Louis area and beyond.
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TRANSCRIPT:
So on my vacation this summer, I was astounded to see just how many mini golf locations there were available in the beach community where we were staying. In fact, I went on Google Maps and counted – there were around 15 of them within a 10-mile stretch, all more or less situated along the same road, and many clustered around one spot in particular.
I’ve been walking the Earth for four and a half decades, and I’m not sure I’ve even played 15 rounds of miniature golf in total, let alone at a different place every time. In fact, in my hometown here in the St. Louis area, our long-time miniature golf location just closed down for good and was bulldozed to make the land suitable for some other sort of business. It was kind of sad, really, because the only thing left for awhile was the giant castle at the end of one of the courses, and then one day, it vanished too.
Hopefully, to a happier fate in a more successful mini-golf place.
But as my family and I went to one of the miniature golf places in our vacation town – the appropriately named “Goofy Golf,” one of those places with giant statues or structures on every hole to really keep your imagination going so you’re not just looking around and realizing you just paid $60 for four people to play mini golf – I started thinking about how one of the reasons that this place and so many others like it in town were able to coexist didn’t have much to do with the demand for mini golf, but a lot more to do with the fact that when consumers are presented with multiple choices within close proximity of each other, they tend to be happier than they are with a single destination all off on its lonesome.
In fact, my hometown mini golf place probably suffered more from the fact that it didn’t have any real competition nearby than it would have if there’d been a second mini golf place right across the street from it.
As it happens, competition really does breed success in business and marketing, and we’re going to talk about why today!
I’m Sean in St. Louis, and this is the Marketing Gateway.
So let’s say you wanted to design a shopping district near your home that would be able to serve your personal shopping needs. If you were thinking about this from a purely logical point of view, you would probably want to have one of your favorite of everything – one preferred grocery store, one preferred restaurant, one preferred coffee shop, one preferred hair salon, one preferred home goods store, one preferred drug store, and so on down the line. And if there had to be two of something, it’d be because they were differentiated in some way – maybe you need a restaurant that serves lunch and another that serves dinner, or a grocery store that has the basics and another that offers the high-end stuff.
With a little bit of thought and planning, you could maybe design a perfectly optimal shopping center to meet your needs. And in fact, this is where we can turn to some pretty interesting math. The famous physicist Richard Feynman once create a mathematical proof on a series of napkins to solve over dinner what he called the “restaurant problem” – if you find a restaurant that serves food you enjoy, you will optimize your happiness by eating there every time instead of considering other choices. In mathematics, this is known as an “optimal stopping problem.”
So if you theoretically had a shopping center that met all your needs perfectly, you could optimize your happiness by shopping there and only there.
But you know what? You probably still wouldn’t shop there a lot of the time.
Why? Because the field of consumer behavior has found that consumers prefer novelty and agency over making the same basic choices over and over. We’re attracted to having a variety of choices and we will, in fact, make irrational choices and go to places that don’t perfectly meet our needs while still mostly being happy with the results – and this isn’t just me saying this, but the actual results of a study that was just published this month in the National Academy of Sciences journal PNAS that delved into the Feynman restaurant problem and found that people tend to vary how much they prioritize exploration and exploitation when they’re trying to manage their happiness.
In other words, you might go to your favorite restaurant time and time again because you want to re-experience that incredible dish they offer. But over time, you may find that your enjoyment of that restaurant fades because it becomes too familiar. And that dish you enjoyed so much? It doesn’t taste quite as good the fifth or sixth time as it did the first or second because your expectations are different and you’re no longer able to be surprised or delighted. You also won’t be disappointed, but you may be something else instead – bored. And being bored causes humans to seek out new experiences and try new things.
You might order a different dish and compare it to the one you love, or you might try that dish somewhere else and see how it fares. Seeking out an alternative might make you rethink your choice next time and stick with what you love, now with a renewed appreciation for it. Or you might broaden your horizons and realize that you have other options to explore, causing you to crave more variation instead of the same experience over and over again.
The conventional wisdom is that consumers faced with a new context tend to eventually settle into habitual purchasing of what they prefer the most. And this can be true with some consumers and some brands. Low-involvement products and services like candy bars, laundry detergent, coffee and fast food tend to be habitual because consumers don’t want to have to make new decisions about things they don’t really want to think about. But high-involvement products or services can also become habitual if consumers find a brand or experience they really like – perhaps sticking with the same brand of car or computer every time they buy a new one or returning to the same vacation destination every year.
Even so, habits tend to be disrupted by changes, whether it’s in the product or service, the marketplace or the consumer. Brands that were once reliable can lose their luster; service providers who were once tuned in to a customer’s needs can lose their edge; products that once met a specific need can be changed or reformulated so that they don’t meet it anymore. And consumers of course can change as they move into different life stages, change their lifestyle or have disruptive events occur in their daily lives.
So, in such a chaotic environment, we can accept that choice is a good thing and that consumers tend to benefit from having it, especially when the alternative to a lack of choice is to either seek a different way of acquiring things or buy nothing at all. If you’ve ever visited or lived in a small town, you’ve probably experienced this firsthand. Many small towns in Missouri have limited choices – maybe one or two restaurants, a small local retail store, a Casey’s and a Dollar General. People in those towns will often find other ways to get the things they need, like taking trips into nearby cities, ordering things online, buying from secondhand sellers, making things themselves or, quite often, just going without things they don’t really need.
But if a new restaurant opens up in town, suddenly, all of the restaurants may be busier. Why? Because the new place will remind people that they have the option of going out to eat, and since that new alternative is likely to be busy due to being new, the alternatives will capture the spillover of interest. In fact, you may hear people saying, “I forgot how much I enjoyed this place!” about a restaurant that’s been around for many years.
This is exactly the effect I’m mentioning, and it even has a name – “the agglomeration effect.” While I don’t want to get too deep into how it works, the idea is pretty simple and is often used to explain why cities and suburban communities tend to have areas that evolve into shopping centers or specialty districts.
And let me put this in marketing terms. If you have a bunch of marketing agencies that are evenly distributed throughout an area, they will all get a little bit of business, but it’ll mostly be what they can attract locally or through referral and reputation alone. But if you have them all situated within a few blocks of one another in a prosperous part of town, they will all see their stature rise because they will attract more foot traffic and demand to that area, probably at the expense of the poor suckers who insist on keeping their offices out in the places that make for an easier commute and thus miss out on all that concentrated interest. This is the entire phenomenon behind Madison Avenue and its string of high-profile marketing agencies in New York City.
And it’s also the phenomenon behind a bunch of truck stops coexisting on the same exit on an interstate or a bunch of restaurants being near each other or a bunch of stores selling overlapping products going into the same shopping center together. Logically, it would make more sense to distribute these types of businesses evenly throughout a community to maximize access and to be the business of choice for those for whom the offering was most convenient.
But again, consumers aren’t logical. They’ll go to those concentrated areas over those lonely oasis businesses that choose to be a destination instead of part of a broader array of choices. And the consumers will even explain that they feel better about going to places where choices exist rather than to places where they feel like they don’t have any choice.
And that’s why, if you’re trying to go it alone in the marketplace, you ought to be thrilled if a competitor arises nearby, because you will both benefit from the increased awareness of your type of business. Coke would be nothing without the constant competition from Pepsi. McDonald’s would never do as well without competitors like Burger King, Wendy’s, Arby’s and Chick Fil-A as it will do with them. And even something as essential as a gas station will do better if another one opens across the street because more people will be drawn to that part of town to fuel their vehicles. Demand will increase because the supply is more readily available.
And that carries over to miniature golf courses, too. When you have 15 of them available and bored people are looking for something to do, a lot of them are going to play mini golf.
But there are a couple of caveats here. One is that demand is always going to be on a curve rather than a straight line and it’s possible for markets to become saturated with choice. The restaurant industry is particularly vulnerable to this because the margins are so thin and the pricing is so inelastic as a result. If demand dips because food costs go up or consumer spending decreases, the restaurants with the least profitable models, poorest service, or the lowest appeal are the most vulnerable to going under as a result.
And believe it or not, this proved to be true for miniature golf in our vacation community, too. There was another mini golf place right next to Goofy Golf that was closed and abandoned. My brother told me later he’d played mini golf there on his last visit to this community about 7 or 8 years ago and it was pretty decent then. Clearly, it was a casualty of either slacking demand over the last several years or increased competition from newer locations.
There’s also a problem called the Paradox of Choice, which is where consumers can be overwhelmed by choices and spend less than they might with more limited, focused choices. This is basically the difference between a boutique and a big box store. A boutique can sell fewer goods, but more profitably, due to the absence of choice, while a big box store needs to carry a lot of goods and make up for lower margins with volume sales. Scale makes the big box stores generate higher revenue overall, but boutiques can still be quite successful offering limited products or services.
Likewise, a small family fun center offering a few options like mini golf, go-karts and bumper boats, correctly situated and priced, can be competitive with a larger amusement park nearby by offering a cheaper, lower-frills option that doesn’t require the up-front expense and time investment of buying an all-day ticket. The more limited choices can be more attractive to consumers who don’t want to have to make decisions.
Let’s talk about one more topic here, and that’s marketing messaging itself. Believe it or not, social neuroscience has found similar effects in how consumers respond to marketing messages. If consumers are being solicited for a single product or service and there’s no obvious competitor, they will tend to regard it as something novel but show less recall than if they’ve been exposed to similar messages from competitors. The cognitive effects of having to compare messages and differentiate them seems to create a greater stickiness than being exposed to novel messages alone.
Marketers have known this for a long time, of course, which is why traditional media marketing has long tried to forge connections through elements like celebrity associations, storytelling, promotional tie-ins, comparative claims or boasting language. Mailers and circulars have long tried to group like businesses together to amplify interest.
But I feel like this topic is even more important for digital marketers to understand as well because so many modern tactics are about pushing messages out without regard for what’s currently being said more broadly in the competitive marketplace. If digital marketing is being pushed out to intercept search terms or ride the wave of social media trending topics without paying attention to the broader discourse, a lot of opportunity to enhance message recall and stickiness is lost in the process. In fact, when I hear about fluke success stories where a digital campaign overperformed, I often wonder if it’s because the marketers unintentionally tapped a broader conversation without realizing it.
This is of course a rich topic with so much more we could explore. But like a good game of mini golf, I’d rather leave you wanting more at the final hole than wear you out with a more exhaustive experience. After all, the entire reason we play mini golf is because it’s a short, easy and fun alternative to being at an actual golf course all day. And yeah, there were plenty of those full-sized golf courses in and around our vacation community too. But you know what we saw more of than golf courses of any size?
Golf carts. And those have become so popular in vacation towns that one of the other major sights we saw was places to rent them, all on the same stretch of road as the miniature golf courses, all offering basically the same services and all clustered around that same bend in the road where mini golf is the most prominent. It’s the agglomeration effect at work once again, and the irony is, my own kids didn’t even realize those electric carts used to be exclusive to golf courses.
They just associate them with having fun on a summer vacation.
I’m Sean in St. Louis, and this has been The Marketing Gateway. See ya next time!
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